Adani Power board approves Mundra plant slump sale to unit

Industry:    June, 2017

The board of Adani Power Ltd on Tuesday approved the slump sale of its Mundra power plant to its subsidiary Adani Power (Mundra) Ltd, in a bid to attract funding in the separated entity for capacity expansion.

The coal-fired Mundra project in Gujarat generates 4,620 megawatt (MW) of power. A Supreme Court ruling in April disallowing Adani Power from raising power tariffs to compensate for expensive imported Indonesian coal was a major setback for the company.

The sale of the Mundra power generating business undertaking will be subject to statutory and regulatory approvals, Adani Power said in a BSE filing on Tuesday. The transaction “will put Mundra undertaking at par with the other operating subsidiaries of the company, with specific strategic focus as well as specific financial arrangements”, the filing said.

The transfer does not envisage a cash consideration and the company does not plan to list the resulting separate entity, the filing said.

Gujarat Urja Vikas Nigam Ltd (GUVNL), the Gujarat government entity which buys the bulk of Adani Power’s Mundra power under power purchase agreements (PPAs), may pick up a 51% stake in the separated entity, PTI reported on Monday. Adani Power did not disclose if it was in talks to sell the stake to GUVNL.

In April, the Supreme Court set aside an earlier tribunal ruling that allowed Adani Power and Tata Power Co. Ltd to charge compensatory tariff from consumers (bit.ly/2o9I3jj). The ruling was seen as a negative to the finances of Adani Power, which may have to write off some of the additional revenues it had booked in anticipation of a favourable verdict. Adani Power has recognized compensatory tariff of Rs8,800 crore since FY13.

Last month, Adani Power had to discontinue supply of about 1,200MW power to GUVNL in a phased manner due to the unviability of running the Mundra plant on expensive imported coal. For the quarter ended 31 March, Adani Power’s loss widened due to the Supreme Court’s decision.

Adani Power’s performance is expected to improve with commencement of the 440MW PPA at the Tirora plant, better coal supplies at Kawai plant and an uptick in Udupi plant’s plant load factor, Edelweiss Securities said in a 29 May report. “However, given the company’s high leverage, revival of cash flows is critical, which is not in sight and a key monitorable,” the report said.

As of December, Adani Power had estimated debt (long-term plus working capital loan) of Rs48,000 crore. Last week, rating company Crisil Ltd said Adani Power had not provided the requisite information needed to conduct the rating exercise while reaffirming its stable outlook and double B minus rating on the company’s credit facilities of Rs6,559 crore (bit.ly/2rPQsx7).

Adani Power’s shares closed up 1.68% at Rs27.25 on the BSE on Tuesday. The BSE Sensex fell 0.38% to 31,190.56 points.

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